AOL/Time Warner Offers Glimpse of Net's Future

Imagine having a movie-quality training video beamed to your desktop so you can finish your network certification during your lunch hour. Or clicking on your corporate Web site and having a two-way conversation with a virtual benefits administrator. Or downloading your company's CEO's latest speech so you can paste a sound bite into a customer presentation.

Sound far-fetched? Not if Steve Case's vision of the Internet comes to pass.

In his bid to merge with media giant Time Warner, America Online's chairman promises to revolutionize the Internet by pumping rich, multimedia content over high-speed networks to customers across America.

"By joining forces with Time Warner, we will fundamentally change the way people get information, communicate with others, buy products and are entertained," Case vows.

This week AOL, the world's biggest ISP, with 20 million subscribers, and Time Warner, the world's biggest media company, with extensive holdings in magazines, music and video production, agreed to join forces in what has been hailed as the biggest merger ever.

Worth an estimated US$160 billion, the deal will create a technology powerhouse with assets ranging from AOL's massive dial-up network to Web browser software from Netscape Communications to Time Warner's vast cable television network and its Road Runner two-way cable modem access service.

While the deal was driven by the two companies' desire to provide interactive services to consumers, it will likely alter the landscape of the Internet for business customers as well. For example, the widespread availability of high-speed Internet access to the home via cable lines will benefit telecommuters. And innovations brought to the market by entertainment-oriented Web sites such as AOL MovieFone and Entertaindom.com will push the envelope for all Web sites, putting pressure on companies to provide their customers, partners and shareholders with more than static information.

"Those in media, entertainment and publishing have just seen the bar raised significantly with respect to their Web presence and effectiveness," says Mario Morino, an Internet investor, philanthropist and board member of the Internet Policy Institute in Washington, D.C. "This is why one might expect a series of similar consolidation strategies," he says.

ISPs teaming with media barons is the wave of the future, agrees Barbara Dooley, president of the Commercial Internet Exchange, an ISP trade association in Washington, D.C. "There are going to be a lot more mergers. People have been talking about convergence for years," she says.

Consumers and business customers should expect their ISPs to beef up their content through partnerships, mergers or acquisitions of media, entertainment, and content companies. "Networks without content are not going to hold much value," Dooley says. "We will see content companies seeking out distribution outlets."

These deals between content providers and ISPs will foster new types of dynamic, interactive content as well as a greater volume of content, which in turn will increase the requirement for network bandwidth.

AOL/Time Warner is "the first Internet-centric media company," says Harris Miller, president of the Information Technology Association of America in Arlington, Virginia. "These companies have a shared interest in driving bandwidth. ... I see this deal as the beginning of a push toward making the pipes bigger to deliver rich, Internet content to homes and businesses."

One of the big drivers for this deal was AOL's need to offer multiple broadband service options to its customers. In particular, AOL needed access to Time Warner's extensive cable television lines and the cable modem service offered by Road Runner. AOL had already arranged for wireless satellite access services through Hughes and digital subscriber line (DSL) services through deals with local exchange carriers and UUNET.

AOL's long-term deal with UUNET is one reason why MCI WorldCom is so pleased.

MCI WorldCom Inc. CEO Bernard Ebbers, speaking at the National Press Club in Washington, D.C., gave a big and unequivocal endorsement to the deal. "I think the AOL/Time Warner merger is a great merger," he said. Of course, MCI WorldCom - which is trying to convince regulators to approve its pairing with Sprint - has been bullish on every merger and new venture lately.

Fred Baker, chair of the Internet Engineering Task Force, says what's interesting about the AOL/Time Warner deal is the challenge it could pose to competing DSL suppliers as well as to cable access providers such as Excite@home. "Cable has been the Achilles heel to AOL," he says, adding that now AOL will be able to put out a lot of content and have a high-speed network to run it over.

The AOL/Time Warner deal is good news for the entire broadband industry, says Laurie Falconer, a consultant with TeleChoice in Boston, Mass. "What needs to happen for this deal to have a huge impact on everyone is for AOL to full-force market broadband Internet services to their customers," she says. "This deal brings broadband to the masses."

Falconer adds that AOL/Time Warner now has the opportunity to go after the corporate telecommuting market, too. "Large corporations want to go to one provider with a national footprint," she says.

(Carolyn Duffy Marsan, Denise Pappalardo, David Rohde and Sandra Gittlen contributed to this report.)

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